Question 1

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

Accepted Answer

To support an undervalued euro, the European Central Bank would buy dollars, which increases the demand for euros, thereby supporting or increasing its value. Over time, increasing the money supply (through buying dollars) can lead to higher inflation rates in the EU.

Question 2

Figure 19-10 
-Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $4 per pound in the figure above,then which of the following is true?

Accepted Answer

The answer of Figure 19-10 
-Refer to Figure 19-10.Under the...

Question 3

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound)is evidence that the pound is ________ versus the dollar.This surplus can be reduced or eliminated through a ________ of the pound.

Accepted Answer

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is overvalued versus the dollar. This surplus can be reduced or eliminated through a devaluation of the pound.

Question 4

Figure 19-11 
-Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is ________ versus the dollar.A ________ of the pound would correct the fundamental disequilibrium that exists in this market.

Accepted Answer

The pound is overvalued because the quantity supplied is greater than the quantity demanded at the fixed exchange rate of $2.00 per pound. A devaluation of the pound would make it cheaper for foreigners to buy British goods and services, which would increase the demand for pounds and correct the fundamental disequilibrium.

Question 5

Figure 19-11 
-Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the British central bank must

Accepted Answer

In order to maintain a fixed exchange rate of $2.00 per pound, the British central bank must intervene in the foreign exchange market to buy or sell pounds as needed. From the graph, the equilibrium exchange rate is below the fixed rate of $2.00 per pound, which means there is excess supply of pounds. To support the fixed rate, the central bank must increase demand for pounds by buying them in the market. The distance between the equilibrium quantity and the fixed exchange rate of $2.00 per pound corresponds to 1.2 million pounds, which is the amount that the central bank needs to buy per trading day. Therefore, the correct answer is C: buy 1.2 million pounds per trading day.

Question 6

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

Accepted Answer

According to the Bretton Woods system, a persistent shortage or surplus of a currency indicated fundamental disequilibrium in the exchange rate of the country. This was seen as a structural problem that needed to be addressed through policy changes and adjustments rather than by central bank intervention or speculation. Therefore, options A and C are incorrect as they do not reflect the underlying causes of the shortage or surplus.

Question 7

In 1931,the first major country to abandon the gold standard-in order to increase its policy options in face of the Great Depression-was

Accepted Answer

Great Britain was the first major country to abandon the gold standard in 1931, as it believed that it needed policy flexibility to cope with the economic challenges of the Great Depression. The United States followed suit in 1933, while France and Germany held on to the gold standard until the advent of World War II.

Question 8

Figure 19-12 
-Refer to Figure 19-12.The graph above,depicts supply and demand for U.S.dollars during a trading day.At a fixed exchange rate of 0.30 pounds per dollar,the dollar is ________ versus the pound.A ________ of the dollar would correct the fundamental disequilibrium that exists in this market.

Accepted Answer

The answer of Figure 19-12 
-Refer to Figure 19-12.The graph...

Question 9

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Accepted Answer

A revaluation occurs when a government or central bank formally increases the value of its currency in a fixed exchange rate system, in this case from $2.00 to $2.10 per pound.

Question 10

Figure 19-12 
-Refer to Figure 19-12.The graph above depicts supply and demand for U.S.dollars during a trading day,where the quantity is millions of dollars.In order to support a fixed exchange rate of 0.30 pounds per dollar,the U.S.central bank must

Accepted Answer

The answer of Figure 19-12 
-Refer to Figure 19-12.The graph...

Question 11

Under the Bretton Woods system,a fixed exchange rate supported by central banks was known as a(n)________ exchange rate.

Accepted Answer

Under the Bretton Woods system, countries would fix their exchange rates to the US dollar, which was in turn fixed to a fixed amount of gold. This fixed rate was known as the par value, or par exchange rate. Central banks would then intervene to maintain their currency’s exchange rate with the US dollar within a narrow range around the par value.

Question 12

The Bretton Woods system confronted severe problems in the 1960s,problems which included

Accepted Answer

The Bretton Woods system faced issues in the 1960s, notably the "dollar overhang," where the amount of dollars held by foreign central banks exceeded the U.S. gold reserves, threatening the system's stability.

Question 13

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen)is evidence that the yen is ________ versus the dollar.This shortage can be reduced or eliminated through a ________ of the yen.

Accepted Answer

A persistent shortage of yen at a given fixed exchange rate indicates that the demand for yen is higher than its supply at that rate, suggesting the yen is undervalued. To correct this, a revaluation (increasing the value of the yen relative to the dollar) would reduce or eliminate the shortage by making the yen more expensive, thus potentially decreasing demand and increasing supply.

Question 14

Figure 19-10 
-Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Accepted Answer

A revaluation of the currency (in this case, the British pound) would have increased its value relative to the dollar. This would make British exports more expensive to buyers in the United States, thus increasing the price of British exports to the U.S.

Question 15

Suppose the U.S.dollar is backed by one-sixth of an ounce of gold and the British pound is backed by one-third of an ounce of gold.The exchange rate between the U.S.dollar and the British pound equals ________ per pound.

Accepted Answer

The British pound is backed by twice as much gold as the U.S. dollar (1/3 ounce vs. 1/6 ounce). Therefore, it takes 2 U.S. dollars to equal 1 British pound, making the exchange rate $2.00 per pound.

Question 16

Figure 19-10 
-Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate.

Accepted Answer

The Bretton Woods System of exchange rates was a system of fixed exchange rates that was established after World War II. Under this system, the value of each currency was pegged to the value of the US dollar, and the IMF was responsible for maintaining the stability of the system. If the par exchange rate was $2 per pound and equilibrium persisted at $3, then this would be evidence of fundamental disequilibrium, and the IMF would allow a revaluation of the pound.

Question 17

Americans,other than jewelers or rare coin collectors,were not allowed to own gold from the early 1930s until the

Accepted Answer

Americans were restricted from owning gold from the early 1930s until 1974, when President Gerald Ford signed a bill legalizing private ownership of gold coins, bars, and certificates.

Question 18

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

Accepted Answer

The question states that countries that abandoned the gold standard early suffered an average decline in production of 3%. Therefore, it can be inferred that the countries that stayed on the gold standard until 1933 or later suffered a greater decline in production. The answer choices range from 12% to over 30%, and based on this reasoning, the highest choice seems the most plausible. Furthermore, historical data supports this conclusion as countries such as the United States that stayed on the gold standard until 1934 experienced a decline in production of over 30% during the Great Depression.

Question 19

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

Accepted Answer

The United States agreed initially to buy and sell gold at a price of $35 per ounce under the Bretton Woods system. This price was fixed and remained the same until the system collapsed in 1971.

Question 20

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n)________ of the pound.

Accepted Answer

A decrease in a fixed exchange rate, such as from $1.75 to $1.60 per pound, is referred to as a devaluation of the currency (in this case, the pound). This term is specifically used when the value of a currency is lowered by decision of the government or monetary authority under a fixed exchange rate system.

Quiz 19: The International Financial System

In order to support an undervalued euro,the European Central Bank must dollars.Over time,this action will cause the rate of inflation in the EU to .

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $4 per pound in the figure above,then which of the following is true?

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is versus the dollar.This surplus can be reduced or eliminated through a of the pound.

Figure 19-11 -Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is versus the dollar.A of the pound would correct the fundamental disequilibrium that exists in this market.

Figure 19-11 -Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the British central bank must

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

In 1931,the first major country to abandon the gold standard-in order to increase its policy options in face of the Great Depression-was

Figure 19-12 -Refer to Figure 19-12.The graph above,depicts supply and demand for U.S.dollars during a trading day.At a fixed exchange rate of 0.30 pounds per dollar,the dollar is versus the pound.A of the dollar would correct the fundamental disequilibrium that exists in this market.

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n) ________ of the pound.

Figure 19-12 -Refer to Figure 19-12.The graph above depicts supply and demand for U.S.dollars during a trading day,where the quantity is millions of dollars.In order to support a fixed exchange rate of 0.30 pounds per dollar,the U.S.central bank must

Under the Bretton Woods system,a fixed exchange rate supported by central banks was known as a(n) ________ exchange rate.

The Bretton Woods system confronted severe problems in the 1960s,problems which included

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen) is evidence that the yen is versus the dollar.This shortage can be reduced or eliminated through a of the yen.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Suppose the U.S.dollar is backed by one-sixth of an ounce of gold and the British pound is backed by one-third of an ounce of gold.The exchange rate between the U.S.dollar and the British pound equals ________ per pound.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of and the IMF would allow a in the exchange rate.

Americans,other than jewelers or rare coin collectors,were not allowed to own gold from the early 1930s until the

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n) ________ of the pound.

Quiz 19: The International Financial System

In order to support an undervalued euro,the European Central Bank must ________ dollars.Over time,this action will cause the rate of inflation in the EU to ________.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $4 per pound in the figure above,then which of the following is true?

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is ________ versus the dollar.This surplus can be reduced or eliminated through a ________ of the pound.

Figure 19-11 -Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is ________ versus the dollar.A ________ of the pound would correct the fundamental disequilibrium that exists in this market.

Figure 19-11 -Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day,where the quantity is millions of pounds.In order to support a fixed exchange rate of $2.00 per pound,the British central bank must

A persistent shortage or surplus of a currency under the Bretton Woods system was evidence of

In 1931,the first major country to abandon the gold standard-in order to increase its policy options in face of the Great Depression-was

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n) ________ of the pound.

Figure 19-12 -Refer to Figure 19-12.The graph above depicts supply and demand for U.S.dollars during a trading day,where the quantity is millions of dollars.In order to support a fixed exchange rate of 0.30 pounds per dollar,the U.S.central bank must

Under the Bretton Woods system,a fixed exchange rate supported by central banks was known as a(n) ________ exchange rate.

The Bretton Woods system confronted severe problems in the 1960s,problems which included

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen) is evidence that the yen is ________ versus the dollar.This shortage can be reduced or eliminated through a ________ of the yen.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then a revaluation of the currency would have

Suppose the U.S.dollar is backed by one-sixth of an ounce of gold and the British pound is backed by one-third of an ounce of gold.The exchange rate between the U.S.dollar and the British pound equals ________ per pound.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate.

Americans,other than jewelers or rare coin collectors,were not allowed to own gold from the early 1930s until the

Countries that abandoned the gold standard early in the Great Depression suffered an average decline in production of 3 percent between 1929 and 1934.Countries that stayed on the gold standard until 1933 or later suffered an average decline in production of

When the Bretton Woods system was set up,the United States agreed initially to buy and sell gold at a price of ________ per ounce.

A decrease in a fixed exchange rate from $1.75 per pound to $1.60 per pound is called a(n) ________ of the pound.

In order to support an undervalued euro,the European Central Bank must dollars.Over time,this action will cause the rate of inflation in the EU to .

A persistent surplus of pounds at a given fixed exchange rate (in dollars per pound) is evidence that the pound is versus the dollar.This surplus can be reduced or eliminated through a of the pound.

Figure 19-11 -Refer to Figure 19-11.The graph above depicts supply and demand for British pounds during a trading day.At a fixed exchange rate of $2.00 per pound,the pound is versus the dollar.A of the pound would correct the fundamental disequilibrium that exists in this market.

A persistent shortage of yen at a given fixed exchange rate (in dollars per yen) is evidence that the yen is versus the dollar.This shortage can be reduced or eliminated through a of the yen.

Figure 19-10 -Refer to Figure 19-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of and the IMF would allow a in the exchange rate.